Headline index Nifty inherited weak trading cues from global markets and opened on a modestly gap down note. The secularly bearish setup continued throughout the day. The session also remain affected with strong rollover centric activities as today was the monthly derivative expiry. The index took support near its pattern resistance zone and after a modest bounce from the lows, Nifty finally ended with a net loss of 149.95 points, or 1.07 per cent.
The session was also influenced with the weekly options expiry. 13,800 had highest Put OI concentration for most of the day. It later shifted to 13,700, opening some more incremental downsides for Nifty. The index, however, took support at its 50-DMA which stood at 13,728 and saw some recovery from that level. The last five sessions have seen Nifty sharply reverting back to its mean. Volatility cooled off slightly as India VIX declined by 0.42 per cent to 24.29. Going ahead, staying above its 50-DMA will be crucial for Nifty.
Given the nearly 1,000-point decline over the past five sessions, some mild technical pullback in the market cannot be ruled out. The levels of 13,885 and 13,920 will act as potential resistance points, while support will come in at 13,750 and 13,700 levels.
The Relative Strength Index (RSI) on the daily chart stood at 41.47 and once again marked a new 14-period low which was bearish. RSI, however, remained neutral and did not show any divergence against price. The daily MACD was bearish and traded below its Signal Line.
A falling window occurred on the charts. This results out of a gap down and usually leads to continuation of the downside. Importantly, this time, it emerged near its support zone of 50-DMA. Therefore, it should not be singularly analyzed in isolation.
All in all, given the near-term support existing at its 50-DMA, and the near-vertical fall of 1,000-odd points, some possibilities of a technical pullback cannot be ruled out. However, all such pullbacks are likely to see more of a consolidation and limited upsides. There has been a strong improvement in the relative strength in defensive sectors and this trend is likely to persist as we approach the Union Budget. We recommend continuing to approach the market cautiously and stay highly selective while picking stocks in the near term.
(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at email@example.com)